Published on: June 13, 2024
Volume refers to the number of shares or contracts traded in a security or market during a given period. It is a crucial metric for traders and investors as it provides insights into the strength of a price movement and the overall activity in the market.
High volume indicates a high level of interest in a security, whereas low volume suggests a lack of interest.
The Importance of First-Hour Volumes
The first hour of market trading is often the most volatile and can set the tone for the rest of the trading day. This period is crucial because it reflects the overnight news and market sentiment that traders and investors respond to as the market opens.
1. Market Sentiment: The first-hour volume can indicate the overall market sentiment. If a stock opens with high volume and a significant price move, it suggests strong investor interest and confidence, which could continue the trend throughout the day.
2. Price Discovery: Price discovery is most active during the first hour. The opening bell often sees the highest volume as traders react to news, earnings reports, or other significant events. This high volume can help establish a stock’s initial price range and momentum for the day.
3. Momentum Building: High first-hour volumes can signal the start of a strong momentum move. Traders often look for stocks with substantial volume in the first hour as potential candidates for intraday or swing trades, expecting the momentum to carry on.
Rising Volume and Trending Stocks
A stock experiencing a sudden rise in volume, especially above its 20-bar average, can be a strong indicator of a trending stock. The 20-bar average is a commonly used metric in technical analysis that smooths out short-term fluctuations to give a clearer picture of the underlying trend.
Bullish Signal – When a stock’s volume rises significantly above its 20-bar average and the price trends upward, it is often interpreted as a bullish signal. This indicates that more traders are buying the stock, suggesting confidence in its potential for further gains.
Increased Buying Pressure: High volume on an upward move indicates intense buying pressure, which can lead to sustained price increases.
Confirmation of Trend: A rising volume confirms the price trend, giving traders greater confidence to enter long positions.
Bearish Signal – Conversely, if a stock’s volume rises above its 20-bar average during a downward price movement, it may signal a bearish trend. This suggests increased selling pressure and a lack of confidence in the stock’s short-term prospects.
Increased Selling Pressure: High volume on a downward move suggests that traders are eager to sell, potentially leading to further declines.
Trend Validation: Like bullish trends, rising volume on a downtrend confirms the bearish movement, guiding traders to consider short positions.
Volume Scanning Using RZone
RZone is a powerful tool for traders looking to capitalise on volume trends. It allows users to scan for stocks with rising volumes, particularly those exceeding their 20-bar average. By identifying these stocks, traders can pinpoint potential momentum trades for intraday and swing trading.
To scan, follow these steps:
Click on Volume Scanners in the left menu bar
Select Group and Time-Frame (60mins) for Short-Term Trading
Select the stocks with maximum percentage on % 20 Day or %10 Day to look for intraday and swing trading.
Intraday Trading
For intraday traders, high-volume stocks are prime candidates. The increased activity and interest can lead to significant price swings within a single trading session, offering opportunities for quick profits. Stocks with high volumes tend to be more volatile, which is ideal for intraday trading strategies that rely on rapid price movements.
Swing Trading
Swing traders, who hold positions for several days to weeks, also benefit from volume analysis. Stocks showing rising volume above their 20-bar average are often amid a strong trend, which can continue for several sessions. Rising volume suggests that a trend has momentum and may continue, providing swing traders with the potential for substantial gains.
Traders looking for positional traders can check daily volumes, while investors can keep checking weekly volumes on weekends.
